Individuals who donate money to a recognised political party or an electoral trust can claim full tax deduction while computing their gross total income. To avail of the tax exemption under Section 80GGC of the Income Tax Act, one needs to pay through cheque, demand draft or internet banking. Cash payments are not eligible for rebate. Also, donations in kind are not entitled to any tax benefit.
The political party to which a donation is being made must be registered under Section 29A of the Representation of the People Act, 1951. As donations to political parties are part of the Chapter VI-A deductions, they cannot exceed the individual?s gross income.
Moreover, under the Income Tax Act, Chapter 6A, tax deductions for political parties are allowed for salary income, business income, rental income and interest income. If the donation is deducted directly from the salary and the donation receipt is in the name of employer, an employee can claim deduction if he has a certificate from the employer that the contribution was made from the employee’s salary account.
Also, tax deductions cannot be claimed against incomes taxed at special rates such as long-term or short-term capital gains. Donations to political parties can be done online as most recognised parties have their online donation platforms. Electoral trusts are created as pass-through vehicles for routing donations to political parties, and are approved by the Central Board of Direct Taxes.
Details of the donations made to political parties should be submitted to the employer for incorporating them in Form 16. Or else, while submitting tax returns, the details should be mentioned in the specified column. The receipt issued by the political party must contain the name and address of the party, amount donated, and PAN and TAN of the political party.
Political parties also file their income-tax returns containing details of donors who have made contributions above R20,000 to the political party during the specified financial year. A copy of this report is sent to the Election Commission on an annual basis. One must also note that money spent on advertisement, printing brochure or pamphlet of the political party will not be eligible for any tax deduction.
Way back in 2003, a law was enacted that made private donations to political parties easier. It also allowed contributions by private companies to political parties, with a maximum limit of 5% of their profits. For political parties, voluntary contributions are fully exempt from tax. According to Section 29B of Representation of People?s Act, every political party can accept any amount of contribution voluntarily offered to it by any person or company other than a government company.
Political parties, however, cannot accept any contribution from any foreign source. Also, under Sections 3 and 4 of Foreign Contributions (Regulation) Act (FCRA), 1976, political parties are not permitted to accept contributions from foreign companies or companies controlled in India by foreign companies.
